A Fair Price To Pay

By John C. Ardussi, President of Game Mechanics LLC

From Wikipedia:

Price gouging is a pejorative term referring to a situation in which a seller prices goods or commodities much higher than is considered reasonable or fair. This rapid increase in prices occurs after a demand or supply shock: examples include price increases after hurricanes or other natural disasters. In precise, legal usage, it is the name of a crime that applies in some of the United States during civil emergencies.

I am pretty sure that there has never been a civil emergency that required the purchase of a particular outfit or apartment on PlayStation Home. So for the accuracy of terms I request that people not use this term indiscriminately, since it will change the meaning and eventually become less useful. Price gouging requires that the buyer be compelled in such a manner that not purchasing the item will cause suffering or at least a problem.

price-gunTo dispel this notion of price gouging, let me explain the process we go through when creating, then finally pricing items. I cannot guarantee that this has any relation to other developers, but I imagine they have a process that at least includes some of the same factors.

We have no numbers on how many people are in Home. We have no numbers on how many people buy things in Home. We have no numbers telling us how much people spend in Home. And we have no numbers indicating how much people spend on particular item categories such as clothes, apartments, clubs, furniture and the rest. So in terms of the information that a classical business might have to calculate a good price point, we have no data except what we get based on our own items’ sales.

This leaves us flying blind, basically guessing. We obviously use clues like looking at how other developers have priced items, assuming they have chosen a proper price point. But that is the blind leading the blind. And worse, if they just went off a cliff, we might accidentally follow them.

Let’s start at the beginning to see how items develop from day one. My partner (Mike Gehri) and I, who run Game Mechanics, talk about items from a list I have of great ideas. The items are all great, but we have to pick the ones we will do, since we have limited resources. When we first started, we created items that we ourselves would buy, since we had zero data to work with. As we have seen numbers come in, we have adjusted our selection process to include what we see as buyer preferences that we did not anticipate.

Cheaper does not have to lead to more sales

Cheaper does not have to lead to more sales

One of the experiments we did was to release canvas chairs at $0.99 and personalized versions at $1.99. If price was important, then we would have seen a large number of the plain chairs sell. Honestly, we sold very, very few of the plain chairs. We sold and are still selling a lot of the personalized chairs. So while it may make sense that lower priced items should sell more, they do not. What sells is functionality.

This is an online truism that developers openly talk about with each other at conventions. The difficult part of online sales is convincing people to buy things. Once convinced, the price is less of a factor. In other words, cutting your price in half will not double your sales. Our experience is that lower prices will tend to lead to lower revenue.

Okay these are REALLY nice shoes

Okay these are REALLY nice shoes

I have no data to back this up, but I imagine there is a point where this fails. For instance, once you raise the price of a pair of shoes so it starts to compare to the price of an apartment, it creates a whole new buying decision. Suddenly you have buyers choosing between items in different categories. I imagine that will affect sales.

One of the rumors flying around is that prices reflect development cost. While it helps quiet the disgruntled forum complainers, for Game Mechanics it is mostly not true. Once an item is created, the cost of development is set aside. The first thing we look at is how it compares in Home to other similar items. Then we compare the functionality of our item to most items in that category. For instance, there are a few couch swings in Home, but since ours actually swings, we thought that added value and priced it a little higher accordingly.

Once the item is priced, we try to see how many units we need to sell to cover the cost of development. If our development cost is higher than our anticipated revenue, we may raise the price slightly, but we rarely have. If it is lower, we so far have not lowered the price since we have to bring in a certain amount of revenue for all the items we are selling. At this point, our overall revenue has fallen far short of our development costs.

I was in an early pitch meeting with the North American Home team in 2010 in Foster City, pitching one of my ideas when I told them that having apartment’s base price be $5 would hurt the platform long term. My belief at the time, and I believe is still true, is that if a base apartment like a Paris Clock Tower is $5, that leaves little wiggle space for items to come up and smaller apartments to go down. To me, a base apartment has the value of a PSN game priced around $9.99. You spend lots of time in it decorating and having friends over. It is the base on which all items sit. The difference between that and a sofa should be more than a few dollars. If this were the case, I think Home developers would be doing better.

Solve the puzzle

Solve the puzzle

Increasing prices is not about gouging, it is about survival. Sony set the pricing standards when there were very few items. Then they sold a ton of them. I know. I worked on a good chunk of those items. Then they walked out and left the place for the 3rd party developers. But several 3rd party developers left. Mass Media and JetSet Games are gone. Those two did not leave for any other reason than they did not think they could make enough money at it to make it worth their time.

There are only two ways to make more money: sell more units or raise the prices. Since we and most other developers are taking advantage of all the marketing opportunities in Home, the logical conclusion is that the only opportunity left is to raise prices. Not because we are greedy, but because we want to keep making things for Home.

I am not saying here that I think no one has charged too much for a space or an item. I absolutely look at spaces and wonder what the developers was thinking in terms of price. But since I have been told we all get the same data, they are guessing along with us, so I have some sympathy for them.

The goal is to strike the happy medium so that one day we are actually making money developing for Home. We will not be stopping development in Home for now, because people like what we are doing and we enjoy making items for Home. This is not a business decision, but a personal one. We like Home, so we are staying.

1003421_552227244835127_914934309_n[1]But to describe us and other developers as greedy or gouging is 180 degrees from the truth. Currently we are subsidizing the purchase of our items. Not every item loses money. Some even do extremely well. But overall we are not yet back to even.

The reason we like to stick with Home has a lot to do with the fans of our work. These people go off and write articles, make movies, chat up our items to the point we feel we have a lot to live up to. It is really fun to work late nights and weekends when you have that wind at your back.

And do not worry about us going under, we are doing great. The work Game Mechanics has done to pay the bills has been for a NASCAR team, ESPN, a car kit company Factory Five, and we just signed a deal with Verizon. That is what keeps us out of our parents’ basement. What is interesting is that we hear the same message whether it is from ESPN or the Home forums – You should charge less. Very rarely do we hear the message – You should charge more. I think Game Mechanics is in a good place for pricing all our work. My parents think so, too.

July 8th, 2013 by | 8 comments
John C. Ardussi (deuce_for2) is a developer for PS Home and other platforms. He recently started a new company, Game Mechanics who is now making items and games. Be sure and tell him what you think of what he is doing. He truly listens and adjusts based on input from the community.

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8 Responses to “A Fair Price To Pay”

  1. KrazyFace says:

    From the outside of any business, it can be hard for Joe Soap to fully understand. I suppose my basic thought process about stuff in Home was that since everything’s digital -- nothing more than pixels -- then once an item is made it can be mass produced at zero (or extremely little) cost to the supplier. It becomes a licence to print money.

    There is one, little snag there though; it has to sell a fair amount for that to become the case. Otherwise a company will have spent money on R&D, staff, etc and not recouped that expenditure. Then they have to put another money sink into the same resources on their next idea.

    Joe Soap rarely thinks of these things; all he sees are big, rich, faceless “corporations” selling buckets of everything to everyone! And of course Joe Soap will insist that rather paying bills and licenses, staff and whatever else, the company board meeting is just guys in suit jackets and underwear rolling around in HIS money!

    “Functionality” really is the key now. Sure, people will still buy things because they’re popular or pretty, but now it’s mostly a case of what can an item DO. You guys at Game Mechanics have hit a sweet-spot with your furnishings that take up much less in actual item count than what’s visually available for the avatars to interact with. That makes the basic function of the item more attractive than its aesthetics, nail em both and you’re gonna have a hit.

    Good article, it’s great to hear a developer actually speaking from the heart than from behind a PR mouthpiece. Thanks!

    BTW, some more variations of car-furniture wouldn’t go amiss ; )

  2. Burbie52 says:

    Great article John. It is about time that a developer stood up and explain the truth of things to those who haven’t a clue yet spend their days whining about things.
    People don’t realize how much truly goes int creating something from scratch for Home. The concept, then the art, then the actual creation are a long arduous process, and depending on how complex the item is, it can take months to finish. But apparently all of the developers in Home are supposed to live on pretzels and water and give us everything without worrying about their respective families or bills.
    Those who complain about this all the time must live under the idea that the squeaky wheel gets the grease, but that isn’t always the case, sometimes you just get used to the noise and move on.
    You and Mike do great work, and your passion for Home and the quality of your work speak for themselves. I for one am glad you decided to stick it out with Home, even though many times it is a thankless job.

  3. I’m not at all a businessman and you don’t want me keeping your books. One thing that surprised me probably because I haven’t thought much about it is that you and other devs are not told the amount of people in Home. Were I to open a business in a community I would want to know the population and if possible the percentage of the population that would frequent my business. You guys are flying blind in some respects. That you do well is commendable.

    I do think that price makes a difference not that you said any different really. Recently I had no intention of buying the Hollywood Hills Night Estate because of what I perceived the price to be. I forget what that price was. However, when I discovered the price was $4.99 from the Loot Store I jumped on it so I could put in fireworks.
    Another place where price made a difference was the Gold Mansion. Through what I believe was a pricing glitch I was able to buy the whole thing for around $20. The garage I think was free but still the average per space for the four rooms was $5.

    I could care less what anyone charges because if the price is too high (opinion) and I don’t want to pay it, I will do without.

    Thanks for your history. I found the article fascinating and I wish you luck on your business.
    I’m glad you like Home too and I hope you get filthy rich but more importantly have fun and get satisfaction from what you are doing.

  4. yahslover says:

    Great to hear you insight…you trully are flying blind.I for one do not think your prices are too high,From my experience so far I think the day at the races is too low.Same with the diy racer,Insane prices for what they actually do.
    I run a business so I understand the constant complaints from atleast one fourth of your customers about price.I sell a custom made 16x20 for 75 but still get those people.These are the same people who complain about free items.
    Your prices are awesome,so glad your on home.And I’m looking foward to obtaining more from you.

  5. Nora Rich says:

    I like the idea of a premier price, where things are maybe on sale for 2-3 weeks at an opening price which is on the low side, then announce there will be a raise in price just before it goes up to a higher price. You will actually get more money at first, because of all the units sold. Occasionally, if a thing is not as well received at full price,maybe it is then you can sell it cheaper too. Not every one on home has the money to spend on items. I am doing pretty good with the things I decide to buy at full price, especially items that may not be on home forever, but some people do not have much money to spend on virtual things, no matter how well crafted. I know how much work goes into making things though, and know I do appreciate your work.^_^

  6. Erick says:

    Great article, John! Is the home management team still giving out a top ten list of items sold each month? I’m sure that will help a little, but not too much.

    Your company’s work is most welcomed in the community! Each item seems to completely have the users in mind in it’s components.

    As for the gauging, I’m very glad you brought this up and set to rest the many rumors. I will be passing along this article to the rest of the community!

    • Terra_Cide says:

      As we haven’t received a top ten list in many, many months, nor has the top ten items list in the Home store been updated (which is where we pulled our data from on the last one we ever published -- is it even there now?), I don’t think they are sending those lists anymore.

  7. Gary160974 says:

    The only data that was released is now old, N Dreams celebrated getting 1 million unique users visiting Aurora. it took a year over 4 regions. Which at the time a fair game would shift 1 million copies in one region in a year. Add to that multiple accounts and that most users on home buy very little, you can see the risks. Now it’s getting to the point where there’s so many similar items, price and quality will be even more a selling tool. I wouldnt buy a plain canvass chair, loot give one away free, buying the whole mansion means each piece was discounted. Making personal spaces cost less means with have to decorate them, meaning furniture sales as well. Granzella did that well with Paris apartment. The things that sell well on home are the multiply micro sales and it’s how to do that with items as well is the key. Every high priced item or game opens the ps3 disc game versus home debate again.

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